Why life insurance is tipped to cost more and more

LIFE insurance premiums are tipped to rise annually by about 5 per cent over the next two years to around $265 to meet the surge in demand for stress and depression related payouts by white collar workers.

After three years of falling premiums, the consumers that have taken-out life insurance through their superannuation funds will face higher costs that will eat into their retirement nest eggs.

Experts said the pricing for superannuation insurance sector is playing catch-up with the broader retail insurance sector as its margins are being eroded by the rise in claimants.

"Over the previous 4-5 years prices have fallen by about 15-20 per cent and this has seen a flood of people sign up with almost 5 million super accounts now including insurance," Rice Warner Actuaries Thierry Bareau said.

"And as a result we now expect premiums to rise annually by about 5 per cent over the next two years."

The group life market offered by super funds is estimated to control about 35 per cent of $11.3 billion market with the risk insurance sector tipped to double to around $22 billion over the next 15 years.

A recent Rice Warner report says this increase will close the pricing gap for insurance between super funds and retail insurers.

But Industry Super Network chief executive David Whiteley said the major funds are still able to offer very attractive cover at lower prices as a result of their size and negotiating power.

Many funds offer death or total and permanent disability cover of more than $1 million and income protection up to $20,000 a month at lower prices and without a health check.

Rice Warner estimates the price rises will lift the average annual life and disability premium from its current level of $241 to $265, covering a benefit of $210,000, while annual income protection insurance premiums covering a benefit of $2700 a month will increase to $242.

But the chief executive of life insurance specialists TAL Australia Jim Minto estimates the yearly premium increases may be closer to 10-15 per cent over the next three years for some funds.

And he warns the tight economic times has seen a rise in the number of claimants of work as a result of stress and pressure.

"In some funds - particularly aimed at office workers - this can be as high as 50 per cent but this is not unique to Australia," Mr Minto said.

"But even with the premium increase insurance through super funds is still the cheapest and most convenient method for most consumers."

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